AI disruption risk reshapes stock market as software stocks tumble while hardware firms surge

Stocks in OpenAI's Orbit Get Second Look as Traders Eye Rebound

OpenAI's next funding round will give a sense of how comfortable investors are about funding the company's money-losing operations, with the company looking to raise up to $100 billion and Nvidia reportedly closing in on a deal to invest $20 billion. Artificial intelligence has made a lot of noise in the stock market lately, with bots from Alphabet Inc. and startups Anthropic and Altruist disrupting businesses from software to financial services. But one name has been conspicuously absent from the chatter: OpenAI. The erstwhile AI kingmaker has been passed by its rivals, or at least that's the public perception. However, Wall Street isn't ready to throw in the towel on the maker of ChatGPT or the companies attached to it. "It is very possible, if not likely, that at some point this year OpenAI will have come out with a new model that's recaptured the zeitgeist, reversing the perception that it is lagging," said Brian Barbetta, co-leader of Wellington Management's technology team and a co-portfolio manager on the global innovation strategy. "It stands to reason that the OpenAI-connected stocks will benefit as well." The shares of companies tied to OpenAI have come under heavy pressure in recent months. A basket of companies connected to OpenAI has tumbled 13% this year, while a basket of Alphabet-tied stocks is up 21%. So that vibe shift is sorely need. But there's growing optimism among investing pros that OpenAI's also-ran status is temporary. Should sentiment continue to improve, it could spur rallies in its major partners like Nvidia Corp., Oracle Corp., Microsoft Corp., CoreWeave Inc. and Advanced Micro Devices Inc. Perceptions about OpenAI's leadership in the technology landscape shifted last fall after Alphabet's Gemini AI model received broad acclaim. This year, the story has been Anthropic's Claude model, which has sparked repeated selloffs in companies considered to be in its competitive path. "Other AI companies are doing well," Barbetta said. "But so far we haven't seen evidence that their success is opening at OpenAI's expense in any meaningful way, in terms of growth or usage." The next turn in sentiment could reopen the door for OpenAI. ChatGPT's revenue trends are improving, according to a recent reportBloomberg Terminal. And the company unveiledBloomberg Terminal a new version of its Codex AI coding agent earlier this month, which was laudedBloomberg Terminal by Chief Executive Officer Sam Altman. A key upcoming catalyst is OpenAI's next funding round, which will give a sense of how comfortable investors are about funding the company's money-losing operations, particularly with Anthropic grabbing the headlines. OpenAI is looking to raise up to $100 billion. Meanwhile, Nvidia is reportedly closing in on a deal to invest $20 billion, and Microsoft and Amazon.com Inc. are also said to be talking about investing. "If there's money going in at a higher valuation, then that shows that investors who have done their due diligence are pleased with its progress, which is a vote of confidence and at a bare minimum, helps de-risk the near-term horizon for companies in the supply chain," Barbetta said. OpenAI's fundraising momentum "appears constructive," adding to improving sentiment surrounding its ecosystem, Mizuho Securities's trading desk wrote in a note on Wednesday. "This is a sharp contrast to last week, when Amazon and Google both put out massive capex guidance," Daniel O'Regan, managing director of equity trading at Mizuho, wrote. "A lot of bears interpreted that as intensifying competition for OpenAI, but that trade seems to have reversed pretty quickly." The key issues for companies in OpenAI's orbit are its ability to keep raising money and how quickly it can increase its revenue. There's a roughly $207 billion gap between the company's revenue and its spending plans between now and 2033, according to calculations by HSBC in November. Narrowing that difference will be harder if users are gravitating to products made by OpenAI's rivals. "If they're not able to satisfy investor questions about how they're going to bridge the gap between their spending commitments and their revenue, we'll see that reflected in the price action of the supply chain," said Thomas DiFazio, lead ETF strategist at Roundhill Financial. "Anthropic's rise complicates the view that OpenAI can meet its obligations," DiFazio added. "If Anthropic is the leader, that will definitely impact the confidence people have about whether competitor models can keep up with their growth, or justify the premium being paid for that growth." Roundhill is rebalancing its AI portfolio to recognize what it sees as Alphabet's AI leadership, a shift that has it tilting away from OpenAI names on the margin. Still, DiFazio stressed that sentiment could flip back to OpenAI's favor and support the stocks connected to it. Oracle is one of the most notable companies to hitch its wagon to OpenAI. Its shares have lost more than half their value since hitting a high in September, with much of the weakness reflecting concerns about its relationship with OpenAI. Investors question both Oracle's heavy spending to build out its cloud-computing infrastructure -- with added risk over how it is tapping the debt markets -- as well as OpenAI's ability to meet its spending obligations to the company. But that sentiment is starting to change. D.A. Davidson recently upgradedBloomberg Terminal Oracle shares based on the firm's more positive view about OpenAI. "Oracle has had some pressure given the intimacy of the relationship it has with OpenAI," DiFazio said. "If OpenAI is able to demonstrate efficacy with its latest model, that could be really important to Oracle." Top Tech Stories * SoftBank Group Corp. sprang back to a quarterly profit after Masayoshi Son's bet on OpenAI paid off in valuation gains, cementing the Japanese company's position as an investment proxy for the ChatGPT creator. * Cisco Systems Inc. gave a weaker-than-expected forecast for profitability in the current quarter, spurring concerns that mounting memory-chip prices are taking a toll on the company. * Grab Holdings Ltd. predicted full-year revenue that trailed estimates, a sign of strain in a Southeast Asian ride-hailing and food-delivery market pressured by weaker consumer sentiment. * WhatsApp said Russia's government has moved to "fully block" its popular encrypted messaging service in the country as part of an effort to drive adoption of a new, state-sponsored app. * Samsung Electronics Co. has begun commercial shipments of the latest version of its HBM4 memory chips to an unnamed customer, signaling a strategic lead over its rivals in the high-stakes AI memory market. Earnings Due Thursday * Earnings Premarket: * Earnings Postmarket:New US Stocks Insights & Wraps "Equity Insights" are short stories on equity market color, combining key insights from traders, strategists, reporters and more. They can be found by running NI EQINSIGHT, and can be subscribed to here. "Before the Bell" is a daily story with all you need to know before the open on Wall Street. On the Terminal, click here to see it and subscribe. The "S&P Week in Review" is a wrap of equity events, published every Friday. On the Terminal, click here to see it and subscribe. The "S&P Month in Review" comes on the last day of the month. Click here to see and subscribe.

For stock market, AI turns from lifting all boats to sinking ships

NEW YORK, Feb 12 (Reuters) - Investors are discovering that the artificial intelligence landscape is not just fertile ground for stocks -- it is also a minefield. Enthusiasm about AI's profitability has fueled the U.S. bull market, with stock gains for technology companies and others tied to the build-out of data centers and related infrastructure. Many investors have also pointed to 2026 as the year AI will start boosting bottom lines more broadly, as companies see productivity benefits. But recent concerns over the technology's disruptive potential are rattling industries, including software, legal services and wealth management, as investors rethink how to value those businesses. Questions over massive AI capital spending are pressuring the share prices of some of the world's biggest companies, including Amazon.com (AMZN.O), opens new tab and Microsoft (MSFT.O), opens new tab. "You've clearly seen that breakdown in terms of the monolithic AI trade," said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. "You're going to have these tug-of-war dynamics in a lot of the bigger index weights, just by how the market's rewarding perceived winners and losers in the AI race." Already in 2026, Anthropic's launch of plug-ins for its Claude Cowork agent triggered selling of software stocks. The heavyweight S&P 500 software and services index (.SPLRCIS), opens new tab was down 15% since the end of January, as of Wednesday. Shares of U.S. brokerages tumbled on Tuesday after wealth management startup Altruist introduced AI-enabled tax planning features, with LPL Financial (LPLA.O), opens new tab, Raymond James Financial (RJF.N), opens new tab and Charles Schwab (SCHW.N), opens new tab each dropping at least 7%. Shares of U.S. insurance brokers such as Willis Towers Watson (WTW.O), opens new tab and Arthur J Gallagher (AJG.N), opens new tab also slumped this week, after online insurance platform Insurify released an AI‑powered comparison tool built on ChatGPT. "You're going to see a lot of volatility driven by these headline stories that are also going to be very single-name centric," said Alex Morris, CEO and CIO of F/m Investments. SOFTWARE CHEAPER BUT 'NARRATIVE' CLOUD LOOMS Some of the signature stocks of this bull market have also struggled this year, undercut by concerns they would fail to reap sufficient returns from high capital spending. Shares of Microsoft, which has been caught up in the concerns about the software space, are down 16% this year, while Amazon.com shares are down over 11%. "The concern that they're just spending far too much money ... I think that's an open question," said Yung-Yu Ma, chief investment strategist at PNC Financial Services Group, adding that he thinks "some of the negativity around the spending is going to ease up." Some investors sense a buying opportunity as valuations become more enticing. For example, the forward price-to-earnings ratio for the software and services index recently fell to 22.7 times, its lowest level in nearly three years, according to LSEG Datastream. JPMorgan equity strategists on Tuesday recommended investors add exposure to a basket of higher-quality and "AI-resilient" software companies, saying in a note that they believe "the balance of risks is increasingly skewed towards a rebound." "The challenge right now is that AI is moving quickly," said Keith Lerner, chief investment officer at Truist Advisory Services. "Earnings are still strong, but it's hard for companies to come out and disprove the narrative." In assessing the fallout from AI developments, Sean Dunlop, director of equity research at Morningstar, said economic "moats" - a term used to describe a company's competitive advantages - can help investors "sift through the wheat and the chaff to some extent, whereas selling has been pretty indiscriminate, creating investable opportunities." AVOIDING 'IMPLOSIONS' COULD BE KEY The AI trade lifted a wide swath of technology and related stocks for much of 2025, when the benchmark S&P 500 (.SPX), opens new tab posted a double-digit percentage return for a third straight year. Bullish investors entered 2026 heartened by an upbeat backdrop that includes S&P 500 earnings estimated to rise over 14% this year and the Federal Reserve expected to further ease interest rates. The S&P 500 was last up over 1% this year and not far from record highs, as other areas of the market have picked up the slack for the lagging tech sector. But AI-driven volatility adds a wrinkle. S&P 500 constituents that were lower on the year as of Tuesday were down an average of 10.6%, according to Michael O'Rourke, chief market strategist at JonesTrading. That decline compares to the average 5.9% fall for index members that were lower at this point last year. "In 2026, less is more, and stock picking is about avoiding implosions," O'Rourke said in a note. Reporting by Lewis Krauskopf; additional reporting by Ateev Bhandari in Bangalore; editing by Megan Davies, Rod Nickel Our Standards: The Thomson Reuters Trust Principles., opens new tab

Will software eat the creditors?

In a capital markets fracas, equity portfolio managers roll with the punches. Sure, some of their software-as-a-service holdings may have cratered, but as long as they pick a few winners they could be fine. Lenders, by contrast, do their best to avoid brawls altogether. Credit -- the joke goes -- is like equity, just without the upside. Credit investors therefore simply dream of getting repaid in full and on time. Ten-baggers just aren't out there to offset widespread bankruptcies and restructurings. But lenders are paid a credit spread on their loan book, which should compensate them for lower liquidity and any isolated defaults that sneak through. And defaults will be isolated because they'll be diversified by borrower, geography, and secto . . . wait, what am I looking at? "Business Development Companies" -- the most transparent window into private credit worth around half a trillion dollars -- turn out not to look particularly diversified on a sectoral basis. Even on a subsector basis, enterprise software-as-a-service accounts for a cool eighth of their total industry-wide exposure. This has not gone unnoticed, and MainFT has covered the story today with aplomb. As Michelle Chan writes: Investors are souring on listed private credit funds that lend to software companies as concerns grow over AI's potential to disrupt their business models and eat into their profits. True that. In a research note to clients at the end of January, Matthew Mish and his team at UBS estimated that: . . . 25 -- 35% of private credit portfolios face elevated AI disruption risk. Using BDC portfolios as a proxy (AUM of ~$450bn, $350bn of which is public), exposure to high disruption risk subsectors is most acute in technology (~24% of BDC holdings) and business services (~30% of BDC holdings), including legacy SaaS firms with seatbased pricing models, back office application firms, staffing services, and consulting, which are vulnerable to replacement from AI and declining billable hours. We don't have the time, skills, or inclination to pore through every single BDC to analyse the risk of business disruption for each borrower. But we do have the data to hand to make some banging charts that you can use to help form your own judgment on the risks/rubberneck (delete as applicable). The universe of BDCs is large, and each one is as unique as a snowflake. But the sector itself is pretty concentrated. Almost half the entire industry is run by just four companies and their subsidiaries -- Blackstone, Blue Owl, Ares and BlackRock. And according to PitchBook data, the largest 10 funds accounted for more than half of all assets under management. A fifth is accounted for by just two funds: Blackstone's BCRED and Blue Owl's Credit Income Corp. Let's take a quick peek under the bonnet of these two funds. Blackstone's humungous $77bn Private Credit Fund (BCRED) is more than twice the size of its nearest rival. It's a private fund, meaning that people move money into and out of it at par rather than buy or sell units on the secondary market. At the end of Q3 2025 it had around 29 per cent allocated to technology companies, the vast majority of which were senior secured first lien term loans to software providers. This seems like a lot. The loans are overwhelmingly marked at, or near, par -- meaning that Blackstone reckons the borrowers are good for the money. Just over a fifth its loans to software companies were structured as "Payment-In-Kind" loans -- borrowings on which either modest or no cash interest is paid, with the interest typically instead rolled into one big final payment on maturity. There are good reasons why PIKs can work well for both borrowers and lenders, but in general, PIK borrowers tend to have greater demand for cash and slightly more stretched credit metrics. We wondered whether software borrowers were particularly PIKey, but after crunching the numbers it turns out software loans are just a tiny bit more PIKey than an average BRED borrower: We've got no reason to doubt that these software loans are currently being serviced. And according to PitchBook, the average fair value to cost ratio across the software book was 0.98x, so it looks like the manager is telling the market they're fine. But, given its size, and everything going on in the SaaS world, it's a somewhat worrying exposure nonetheless. The next biggest beast in the BDC world is Blue Owl's $33.5bn Credit Income Fund. Like BCRED it's also a private, non-traded fund. It had around fifth of its assets in tech loans at the end of the third quarter of 2025, three quarters of which is lent to software companies. So BOCI has a more diversified sectoral exposure than BCRED, but it's still pretty concentrated. Around 11 per cent of the overall AUM were PIK loans at the end of the third quarter, and this share rises to just over 15 per cent in the software segment. Again, the loans were overwhelmingly marked at par, and we've no reason to doubt the manager's assessment that they are anything but money-good. With more and more money pouring into private credit, it's tempting to see the rising share of PIKs -- which often come with outsized spreads to compensate for the lack of cash flow -- as a response to shrinking returns from more plain-vanilla lending. Alphaville pulled together the data from PitchBook for these two big BDCs, but the picture isn't entirely clear cut, unfortunately. We can say that weighted average spreads in these two private credit BDCs reached their series low at the end of the third quarter, and that BCRED has never held so many PIK loans, but apart from that ¯\_(ツ)_/¯ Of course, just because the fund managers think that the loans they've originated will work out well, this doesn't mean they actually will. The shares of publicly traded BDCs are saying they definitely won't. Investors in publicly traded BDCs -- unlike BCRED and Blue Owl Credit Income Corp -- can't ask for their money back at par value. To get their money back they need to sell their shares to someone else. And the price of these shares has not fared well lately: The confluence of lower interest rates and lower loan spreads (pulling revenues down), and their substantial debt service costs (pushing costs higher) could be doing a lot of the work. But the looming prospect of credit losses is definitely not helping. Of course, the stock market can be fickle. And it's quite possible for a company to be good for all its loan repayments even if its equity holders are pretty much -- or entirely -- wiped out by AI disruption. So maybe the stock market and BDC managers are both right: AI disruption to software and business service companies could be big enough to knock off some shareholder value, but not big enough to push them into default? UBS aren't so sure: . . . Loan prices remain clustered near par, even among B-rated tech and services credits. This gap suggests credit markets are lagging the signal being sent by both equities and bankruptcy data. Whatever the outcome, we're a long way from the world described by Blackstone co-founder Stephen Schwarzman, when he recommended private credit to investors back in 2023 as offering "12, 13 per cent with almost no prospect of loss". Even some senior private credit investors are now musing whether software is dead (albeit behind closed doors). If the stock prices of BDCs and their managers is anything to go on, things are at least starting to look a little bit more dicey.

The AI narrative now has a new trade -- shorting software stocks

Software and data services stocks remain under pressure after Anthropic's rollout of a legal automation tool reignited fears of AI-driven disruption -- and now one fund manager says that shorting software has become the market's newest expression of the AI trade. Software names -- along with data service companies, financial information providers and publishers -- went into reverse this week amid fears that such business models could be upended by AI-driven disruption, which could see customers desert such companies. "Any company which collates, aggregates, disseminates software and data as a service are seen as increasingly vulnerable to disruption from AI-driven tools," said Sharon Bell, senior European equity strategist at Goldman Sachs, in a note Friday. The new plug-in for Anthropic's Claude co-working agent will provide AI tools across legal, sales, data analysis and marketing tasks -- potentially rivalling established software services. "The Anthropic announcement was just a catalyst to realize fears that have been growing." Software stocks, as tracked by the S & P 500 Software & Services Index, slipped 4% Thursday, with the benchmark now down almost 20% year-to-date. Goldman Sachs' own Digital Economy basket fell 10%. Salesforce , Thomson Reuters and LegalZoom were among the names seeing the sharpest falls. CRM YTD mountain Salesforce. "In this context, shorting software stocks seems to have emerged as a new expression of the AI trade, with short interest in Software-as-a-Sector at a two-year high," said Mark Dowding, chief investment officer at RBC BlueBay Asset Management. Outlining the bearish stance, Dowding highlighted the potential for further reverberations across capital markets from the software unwind, including in private debt and bank lending. In a market commentary Friday, Dowding said many private debt funds have "as much as 30% sector exposure in the software space." He said many business development companies -- closed-end investment vehicles run by alternative investment managers that offer access to private credit assets -- are now trading at discounts of between 20% and 30% of their net asset value. Software is also heavily represented in the traditional bank lending space, he added. "This trend has been interesting, as it demonstrates that not everything that emerges in a new age of AI will be bright or wonderful, and it raises the specter of potential disruption to come," Dowding said. However, Anish Acharya, general partner at venture capital outfit a16z, said there is a lot more software to build. "It does automate tasks -- it does not automate entire jobs," Acharya told CNBC's "Squawk Box Europe" on Friday. "Look at customer support... someone still has to take the customer out for a steak dinner. So far, the AI's not doing that. So that person is doing more customer relationship-building and less day-to-day roadwork."

AI Loser Software Stocks Overshadowed as Hardware Earnings Jump

Europe's software companies are set for slower earnings growth than their hardware counterparts this year, compounding fears in global markets that artificial intelligence will reshape software firms' business models. Europe's software companies -- the firms whose services could be disrupted by the advent of more sophisticated AI tools, including SAP SE, Dassault Systemes SE and Reply SpA -- are expected to see earnings-per-share growth slow to 13% compared with 17% last year, Bloomberg Intelligence data shows. On the flip side, Europe's chipmakers and makers of semiconductor equipment -- the firms providing the infrastructure underpinning the AI boom, including Infineon Technologies AG and ASML Holding NV -- are set for an earnings jump of 21% in 2026, compared with just 7% growth in 2025. Startup Anthropic PBC's release of a new AI plug-in to automate legal work triggered a global selloff among software and IT companies last week as investors rushed to limit their exposure to companies whose products could become redundant in the age of AI. The launch of an AI tool from an online insurance platform on Monday aggravated investors' fears about how AI applications can upend a variety of industries. "AI is going to be a drag on revenue growth of IT firms over the next 1-2 years as the deflation in revenues from existing service lines will more than offset emerging revenue streams from AI adoption," Jefferies analyst Akshat Agarwal wrote in a note. Estimates don't yet fully reflect that risk, he added, which could pressure valuations. Already, a divergence between software and hardware stocks has emerged this earnings season. While chipmaker equipment manufacturer ASML reported record ordersBloomberg Terminal and an upbeat outlook, German software giant SAP disappointed investors with lackluster growth in its cloud business. Similar dynamics are playing out in China, where earnings estimates for the country's broader information technology firms have been outpacing the country's biggest consumer-internet names. Hardware providers are set to benefit from technology bellwethers spending more on AI gear. Ambitious capital expenditure plans from Amazon.com Inc and Google parent Alphabet Inc sent shares of infrastructure firms higherBloomberg Terminal, as that's set to translate into stronger demand for chipmaking and data center equipment. Read: Alphabet Sells Almost $32 Billion Bonds as Tech Races to Fund AI The expected outcome of that frantic investment -- better, faster AI tools -- threatens software firms' business models. Richard Clode, portfolio manager at Janus Henderson, said he no longer investsBloomberg Terminal in the commercial and professional services sector. "It's just not worth the battle. We've got plenty of other opportunities in tech," he said. Not every software firm is created equal in the face of AI disruption. Companies in the communication and collaboration fields, such as project management and email marketing, face bigger risksBloomberg Terminal. "We see AI becoming the primary user interface for these," Bloomberg Intelligence analyst Niraj Patel said. Companies that operate in payroll, product life cycle management, electronic-design automation and construction software are better positioned, according to Patel, partly because of their proprietary data. AI concerns are also "largely unfounded" for cybersecurity companies, according to Berenberg analyst Rahul Chopra. The rout in AI-exposed stocks looks set to continue as the market tries to figure out who the AI losers and winners are, with the gap in stock performance between software and hardware widening further since mid-2025. "We are at a stage where investors have aggressively bought enablers and aggressively sold companies considered at-risk from AI disruption," UBS strategists led by Gerry Fowler wrote in a noteBloomberg Terminal. "Sometimes too indiscriminately in the case of SAP in our view."

AI‑led software selloff may pose risk for $1.5 trillion U.S. credit market, says Morgan Stanley

Feb 10 (Reuters) - Concerns that artificial intelligence could disrupt large parts of the software industry have started to spill into credit markets, Morgan Stanley warned, as software accounts for about 16%, or $235 billion, of the $1.5 trillion U.S. loan market. WHY IT'S IMPORTANT Financial markets, juiced for months with investor enthusiasm about the AI trade, were jolted last week as global software stocks sank on worries that fast-advancing AI tools could disrupt the industry. CONTEXT A majority of the software sector's exposure is tied to lower credit ratings - with 50% of the loans holding a "B- or lower" credit rating - loans which typically denote a higher risk of default, the brokerage said in a note dated Monday. Morgan Stanley said 20% of software loans are "B" rated and 26% are "CCC" rated, while only 7% hold a higher "BB" rating. Unlike the equity market, more than 80% of software loans are issued by private companies and nearly 78% are sponsor- backed, which indicates limited access to financials needed to assess exposure to AI-driven disruption. BY THE NUMBERS "Software also faces a more front-loaded maturity wall than the overall market," Morgan Stanley said as the sector has roughly 30% of outstanding loans due by 2028, versus 22% for the overall market. Also, 46% of software debt is due within the next four years, compared with less than 35% of the wider loan market, Morgan Stanley said, which makes refinancing risks appear particularly acute if AI disruption-related concerns were to materialize quickly. KEY QUOTES However, the risk of large, systemic disruption across the software sector is limited in the near term, the brokerage said. "We expect continued price volatility in loans, but a near-term spike in defaults is unlikely," it added. Reporting by Siddarth S in Bengaluru; Editing by Leroy Leo Our Standards: The Thomson Reuters Trust Principles., opens new tab

Private credit worries resurface in $3 trillion market as AI pressures software firms

Apollo Global Management signage in New York on Dec. 5, 2023.Jeenah Moon | Bloomberg | Getty Images Private credit markets are facing fresh uncertainty as AI-driven tools start to pressure software companies, a major borrower group for private lenders. The software industry came under renewed pressure last week after artificial intelligence firm Anthropic unveiled new AI tools, sparking a sell-off in software data provider shares. The AI tools, developed by Anthropic, are designed to perform complex professional tasks that many software companies currently charge for, raising fresh concerns that AI could weaken traditional software business models. Shares of asset managers with large private credit franchises tumbled this week as investors fretted about how AI could upend borrowers' business models, pressure cash flows and ultimately lift default risks. Ares Management fell over 12% last week, while Blue Owl Capital lost over 8%. KKR declined almost 10%. TPG lost about 7%. Apollo Global and BlackRock fell over 1% and 5%, respectively. For comparison the S&P 500 declined by about 0.1%, while the tech-heavy Nasdaq fell 1.8%. The moves bring to fore a growing unease around private credit market which now has to brace for the impact from AI-driven disruption to the software sector that is heavily exposed to buyouts financed with opaque, illiquid loans, according to market watchers. "Enterprise software companies have been a favored sector for private credit lenders since 2020," PitchBook wrote in a report last week following the fallout, adding that many of the largest-ever unitranche //what's that?// loans, the favorite structure of the private credit market, have been software and tech companies. Software makes up a significant share of loans held by U.S. business development companies, accounting for about 17% of BDC investments by deal count, second only to commercial services, data from PitchBook showed. That exposure could prove costly if AI adoption accelerates faster than borrowers can adapt. UBS Group has warned that, in an aggressive disruption scenario, default rates in U.S. private credit could climb to 13%, significantly higher than the stress projected for leveraged loans and high-yield bonds, which UBS estimates could come to around 8% and 4%, respectively. "Private credit loans to a lot of software companies," said Jeffrey C. Hooke, a senior lecturer in finance at Johns Hopkins Carey Business School. "If they start going south, there's going to be problems in the portfolio." Hooke, however, said that strains in private credit pre-date the latest AI concerns, pointing to issues around liquidity and loan extensions. "A lot of private credit funds have had problems liquidating their loans," he said, adding that the recent developments has simply added another layer to a sector already under pressure. This slate of new warnings come on the back of recent concerns in the $3 trillion industry over leverage, opaque valuations and the risk that isolated problems may turn out to be systemic issuesJPMorgan's Jamie Dimon warned late last year about private credit's 'cockroaches,' cautioning that stress in one borrower can signal more hidden trouble. "AI disruption could be a credit risk for private credit lenders for some of its Software & Services sector borrowers and perhaps not for others as it depends on which ones are behind the AI curve and which ones are on top of it," said Kenny Tang, head of U.S. credit research at PitchBook LCD. Tang added that software and services companies account for the largest share of payment-in-kind (PIK) loans, which refer to arrangements where borrowers can delay paying interest in cash. While PIK structures are often used to give fast-growing companies time to build revenue and cash flow, they become risky if a borrower's finances weaken. In that case, deferred interest can quickly turn into a credit problem, he said. Moody Analytics' chief economist Mark Zandi noted that while it is difficult to grasp a complete assessment of risks in the sector given its opacity, the rapid growth in AI-related borrowing, mounting leverage and a lack of transparency are considerable "yellow flags." "There will surely be significant credit problems, and while the private credit industry is probably currently able to absorb any losses reasonably well, this may not be the case a year from now if the current credit growth continues."

The New AI Stock Trade Is Dumping Any Company In Its Crosshairs

On Wall Street, rising fears about artificial intelligence keep pummeling the shares of companies at risk of being caught on the wrong side of it all, from small software companies to big wealth-management firms. The latest selloff erupted on Tuesday when a tax-strategy tool rolled out by a little-known startup, Altruist Corp., sent the shares of Charles Schwab Corp., Raymond James Financial Inc. and LPL Financial Holdings Inc. down by 7% or more. It was the deepest slide for some of those stocks since the market's trade-war meltdown in April. But it was only the most recent example of a sell-first, ask-questions-later mentality that's rapidly taken hold as the hundreds of billions of dollars poured into AI is starting to turn into commercial products -- and sowing anxiety about how it could upend entire industries. "Every company with any sort of potential disruption risk is getting sold indiscriminately," said John Belton, a money manager at Gabelli Funds. The advances in AI have been at the forefront of Wall Street over the past few years with tech stocks leading the charge. As the rally pushed stocks to record highs, questions persisted about whether it was a bubble about to burst -- or would set off a productivity boom that would remake corporate America. But since early last week, a trickle of AI product rollouts triggered a stark sea change. Instead of focusing on picking the winners, investors instead are quickly trying to avoid getting caught owning any company with the slightest risk of being displaced. "I have no idea what's next," said Will Rhind, the CEO of Graniteshares Advisors. "The story from last year was we all believe in AI -- but we're searching for the use case," he said. "And when we keep discovering the use cases that seemingly are more and more powerful and more and more compelling, it's now leading to disruption." Trillion-Dollar Tech Wipeout Ensnares All Stocks in AI's Path Anthropic AI Tool Sparks Selloff From Software to Broader Market Wealth Manager Stocks Sink as Investors Flee AI's Next Casualty Insurance Broker Stocks Sink as AI App Sparks Disruption Fears The software industry has been dogged by worries about AI for some time. It started shifting more broadly to other sectors last week, when a new tools from Anthropic PBC sparked a deep rout in stocks across the software, financial services, asset-management and legal-service sectors. The same fears hammered shares of US insurance brokers on Monday after the online marketplace Insurify unveiled a new application that uses ChatGPT to compare auto-insurance rates. On Tuesday, wealth-management stocks were the next casualty, pulled down by Altruist's product, Hazel, which helps financial advisers personalize strategies for clients. Altruist CEO Jason Wenk said even he was surprised by the scale of the stock market's reaction, which wiped billions of dollars off the market values of a number of investment firms. But he said it sends a strong signal about the competitive threat posed by his company. "It's dawning on people -- this architecture we're using to build Hazel, it can replace any job in wealth management," he said in an interview. "Usually these are jobs done by entire teams. And they'll be done with AI effectively for $100 a month." AI companies like OpenAI and Anthropic have made solid inroads into software engineering with products that help developers streamline the process of writing and debugging code and are moving into other industries. Yet there are plenty of questions about how the technology will be adopted. The banking industry, for one, has seen periodic challenges from crypto, electronic services other technology that ultimately have done little to chip away at its dominance. Belton, the fund manager with Gabelli, is among those who are skeptical of how Wall Street has gone from worrying about an AI bubble to fears that it's poised to disrupt huge segments of the economy. "There's going to be winners and losers in every industry," Belton said. But, he added, "one rule of thumb is tech-disruption tends to take longer than expected to play out." The pullbacks may also reflect the general anxiety about how much stocks have rallied over the past few years on the back of the AI spending boom and a surprisingly resilient US economy. That has stretched valuations and made investors sensitive to fears of a reversal. "If they just give a whiff of something that the market perceives as being somewhat negative, the stock's going to sell off 10% in a way that would never happen in a market that was not trading at this level," said Graniteshares' Rhind said. To Ross Gerber, the CEO of Gerber Kawasaki, the angst about AI losers that has been battering parts of the market for the past week is premature. He said it's still far too early to say what exactly the fallout will be. "We can try to extrapolate out what the world will look like in five years with AI, but we just don't know," he said. "Markets are trying to make these calls on it when we're still in the beginning of this infancy."

It's not just stocks. Software gets rattled in the debt market.

Why it matters: There are signs of rising financial stress for software makers, public and private, but as we head into the week, there are some reasons to believe a di-SaaS-ter could be averted. The big picture: Everything is SaaS these days -- nearly every piece of software people use, particularly at work, from Slack to Microsoft Word. Companies spend a ton of money for SaaS on a monthly or annual basis. * Until very recently, investors in the private markets, like private equity firms, were extremely SaaS positive. * The software business offered a safe, recurring stream of revenue. And growth prospects looked good. * Then AI entered the chat. Catch up quick: Last week, the stock market appeared to wake up to the notion that AI will change how these companies work, and they didn't like the vibes. * Stock prices fell across the sector. Zoom in: But signs of SaaS trouble in the private markets had been building well ahead of that ah-ha moment. * An increasing share of loans backing software firms are trading at "distressed" levels, or below 80 cents on the dollar, according to data from PitchBook. By the numbers: $25 billion in software loan volume was marked at distressed levels by the end of January -- more than double what it was in December. * 30% of all the distressed debt in this loan market is coming from the software sector, which makes up an outsized share of the overall market. Between the lines: These are companies heading toward trouble, says Rachelle Kakouris, director of LCD Research at PitchBook. Think bankruptcies, restructuring, etc. * During the pre-inflation days of 2020 and 2021, many of these companies were borrowing money at very low rates. * "Now, the halcyon days are behind us," she says. Reality check: There's much talk right now about SaaS disappearing, as companies could soon start writing their own code and software with AI. * But companies move slowly, they already trust their SaaS providers, and it would be costly to start over. * "Replacing a core SaaS platform is effectively open-heart surgery for an enterprise," per a note from PitchBook. More likely, their established providers will incorporate AI into their products. * "There's a whole bunch of software companies whose stock prices are under a lot of pressure because somehow AI is going to replace them," Nvidia CEO Jensen Huang said last week. "It is the most illogical thing in the world." * "Would you use a hammer or invent a new hammer?" Flashback: This definitely isn't the first major disruption to the software business to roil markets and create uncertainty over the sector's future. * The advent of the Internet made way for new huge players in software, like Google. Plenty of software companies went under or were absorbed or shrank. Lotus 1-2-3 ring a bell? Probably not if you're under 50 years old. * Back in 2007, investor Paul Graham even wrote an obituary for Microsoft. The bottom line: AI is disrupting the investment picture for the software business, but no one truly knows what will happen next.

How a software meltdown will shake private markets

LONDON, Feb 5 (Reuters Breakingviews) - Public market investors are freaking out about artificial intelligence. Yet the pain may be even more dramatic in the worlds of private equity and credit. Buyout barons and direct lenders -- think of Vista Equity Partners, EQT (EQTAB.ST), opens new tab, Thoma Bravo, Blackstone (BX.N), opens new tab, KKR (KKR.N), opens new tab, Ares Management (ARES.N), opens new tab and Blue Owl Capital (OWL.N), opens new tab -- have spent years stuffing software companies and loans into their funds. An AI reckoning could get very messy very quickly. Shares in listed software groups are reeling over fears that new AI tools, from developers like Anthropic, may eat incumbent products that handle enterprise tasks including expense management. The BVP Nasdaq Emerging Cloud Index (.EMCLOUD), opens new tab, which includes names like Workday (WDAY.O), opens new tab and Salesforce (CRM.N), opens new tab, is down 14% since last Monday. Its constituents, excluding positive outlier Palantir Technologies (PLTR.O), opens new tab, now trade with a median forward EBITDA multiple of at about 16, according to a Breakingviews analysis of LSEG Datastream figures. That compares with a multiple of 22 at the start of this year, and roughly 30 just before OpenAI released ChatGPT in late 2022. Debt prices tell a roughly similar story, at least in the widely traded syndicated loan market, which is distinct from the more opaque private credit world. PitchBook reckons that the volume of loans trading below 80% of face value, a sign of deep financial stress, has more than doubled since the end of December, to $25 billion. Software loans account for nearly a third of all so-called distressed credit in these liquid markets, PitchBook reckons. All of this implies steep losses in private markets. Software companies were a popular choice for buyout barons after the pandemic, egged on by seemingly sticky customer relationships and cheap debt. Data from Bain & Co. shows that in 2021 alone, software buyouts amounted to $256 billion, or more than a fifth of the total. Marquee transactions included Thoma Bravo's $6 billion take-private, opens new tab of Medallia, or Vista's $3.9 billion acquisition of education group Pluralsight, which has already been taken over by creditors. In many cases, the debt funding came from direct lenders, who are likely still exposed. A Kroll StepStone benchmark covering $835 billion of U.S. private credit contains some $180 billion worth of IT sector debt, or 22%. Dealmaking certainly got toppy in the post-pandemic boom. On average, software buyouts were struck at enterprise value to EBITDA multiple of over 20 in 2021, and carried debt equivalent to around 10 times EBITDA, per PitchBook figures. Leverage moderated slightly after that heady peak, with borrowing for new deals averaging 7 times EBITDA between 2022 and 2025. Imagine a hypothetical company with EBITDA of $100 million in 2021. If acquired at 20 times EBITDA, with 7 times leverage, the initial equity would have been $1.3 billion, against $700 million of debt. Next assume that EBITDA is on track to grow to $150 million by the end of 2026, equivalent to a healthy 9% annual rate, and that the debt still remains. If the valuation multiple had halved, in line with public markets, the theoretical equity value would be down 40% to $800 million. If a fair multiple is more like 5 times, in line with some of the more distressed public software names, then the equity would be nearly wiped out and lenders close to facing losses. UBS analysts estimate that the default rate for private credit could jump by up to 8.5 percentage points in a scenario of rapid AI disruption. One risk is that investors, fearing this scenario, pull money from semi-liquid private credit funds. Some vehicles, including those known as business development companies (BDC), allow backers to withdraw a portion of their funds every three months. They've been sold to individual investors, who may arguably be less sophisticated and more prone to panic. Blue Owl Technology Income, one such BDC, had redemption requests equivalent to 15% of its shares in the fourth quarter of last year, despite a strong track record. While Blue Owl was able to honour the redemptions, a wider run on those vehicles could force funds to gate investors or even sell assets, which would depress prices further. That would have a knock-on effect to other vehicles like collateralised loan obligations (CLOs), which slice and dice debt into different tranches for buyers like insurers. When a certain percentage of CLO assets are downgraded below B-minus, which in the credit-rating world signals a higher risk of failure, the vehicles can be forced to shut off cash payments to some investors. The net effect may be to drive up borrowing costs, and choke off funding for future buyouts. That fallout is not yet apparent. U.S. companies rated single-B, the second sub-investment grade rung, on average have to pay some 310 basis points more than risk-free rates to borrow in bond markets, per ICE Bank of America indexes. That's up some 30 basis points since the last week of January. But it's still roughly in line with the two-year average. That narrow extra return, however, means there's plenty of scope for financing conditions to worsen as the AI fallout spreads. Follow @Unmack1, opens new tab on X Editing by Liam Proud; Production by Streisand Neto * Suggested Topics: * Breakingviews Breakingviews Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time. Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on X @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors. Neil Unmack Thomson Reuters Neil Unmack is a Reuters Breakingviews Associate Editor based in London. He covers credit markets, hedge funds, and Italy. Previously he was a corporate finance reporter at Bloomberg News in London. He started his career as a financial journalist in 2001 at Euromoney Institutional Investor, where he covered structured finance for EuroWeek magazine. He was educated at Eton College and Oxford University, graduating with a first class degree in modern languages.

AI Fear Grips Wall Street as a New Stock Market Reality Sets In

For months, investors have been growing increasingly anxious about how artificial intelligence will potentially transform the economy. Last week, those concerns suddenly spilled over into the stock market. The culprit was AI startup Anthropic, which released new tools designed to automate work tasks in various industries, from legal and data services to financial research. The announcements sparked fears that the innovations would doom countless businesses. In response, investors dumped a broad range of stocks, from Expedia Group Inc. to Salesforce Inc. to London Stock Exchange Group Plc. By Friday, dip buyers stepped in, helping the widely followed iShares Expanded Tech-Software Sector ETF, better known by its ticker IGV, rebound from its 12% decline over the previous four sessions. But for bleary-eyed Wall Street pros, rattled by days of volatile trading, the message was clear: This is the new reality. "Things are shipping out weekly, daily," said Daniel Newman, chief executive officer of the Futurum Group. "The blast radius of companies that could be impacted by AI is going to grow daily." Anthropic AI Tool Sparks Selloff From Software to Broader Market Even with the end-of-week rebound, the damage was severe. Thomson Reuters Corp.'s Canada-listed shares plunged 20% on the week, their steepest fall ever. Financial research firm Morningstar Inc. posted its worst week in the stock market since 2009. Software makers HubSpot Inc., Atlassian Corp. and Zscaler Inc. each tumbled more than 16%. All told, a collection of 164 stocks in the software, financial services and asset management sectors shed $611 billion in market value last week. (Bloomberg LP, the parent of Bloomberg News, competes with LSEG, Thomson Reuters and Morningstar in providing financial data and news. Bloomberg Law sells legal research tools and software.) AI's disruptive potential has been a topic of conversation since the debut of OpenAI's ChatGPT in late 2022. But until last week, most of the attention has been on the winners. With hundreds of billions of dollars being spent to beef up computing capacity, investors eagerly bought the shares of companies considered beneficiaries of the largesse, from chipmakers and networking firms to energy providers and materials producers. That strategy has paid off handsomely. An index that tracks semiconductor-related stocks has more than tripled since the end of 2022, compared with a 61% advance for IGV and an 81% jump in the S&P 500 Index. While the so-called pick-and-shovel trade is still winning, the rapid pace of new tools being brought to market by startups like Anthropic and OpenAI, as well as Alphabet Inc.'s Google, is making the long-theorized disruption seem much more imminent. In just the past month, Google roiled video-game stocks with the release of a tool that can create an immersive digital world with simple image or text prompts. And another Anthropic release, a work assistant based on its Claude coding service, sent software stocks tumbling. 'No Reasons to Own': Software Stocks Sink on Fear of New AI Tool The developments added to angst fueled by a set of disappointing earnings reports from software makers late last month. The biggest was Microsoft Corp., which lost $357 billion of market value in a single day after slowing revenue growth in its cloud-computing business fanned anxieties about heavy spending on AI. ServiceNow Inc. sank 10% and SAP SE tumbled 15% following similarly lackluster results. "It was the stalwarts that failed us," said Jackson Ader, a software analyst at KeyBanc. "If your results and your guidance aren't up to snuff, it's kind of like: What confidence should we have for the rest of the sector?" Get the Bloomberg Deals newsletter. Get the Bloomberg Deals newsletter. Get the Bloomberg Deals newsletter. The latest news and analysis on M&A, IPOs, private equity, startup investing and the dealmakers behind it all, for subscribers only. The latest news and analysis on M&A, IPOs, private equity, startup investing and the dealmakers behind it all, for subscribers only. The latest news and analysis on M&A, IPOs, private equity, startup investing and the dealmakers behind it all, for subscribers only. Bloomberg may send me offers and promotions. Plus Signed UpPlus Sign UpPlus Sign Up By submitting my information, I agree to the Privacy Policy and Terms of Service. While plenty of new names were bruised last week, few have been punished to the extent of traditional software makers, which have been under pressure since last year. Salesforce, which owns the popular team collaboration service Slack, is down 48% from a record high in December 2024. ServiceNow, which makes software for human resources and information technology operations, has dropped 57% since hitting a peak in January 2025. "I suspect some companies will endure, embrace AI, and prosper, but others will see permanent disruption to their business models or prospects," said Jim Awad, senior managing director at Clearstead Advisors. "It is very hard to know which is which right now." That fear has investors running for the exits. Software is by far the most net-sold group among all sectors since the start of the year, according to Goldman's prime brokerage desk data. Hedge funds' net exposure to software hit a record low of less than 3% as of Feb 3, down from a peak of 18% in 2023. However, there's little fundamental evidence of deterioration. In fact, in the eyes of Wall Street analysts, the outlook for profits is improving. Earnings for software and services companies in the S&P 500 are projected to rise 19% in 2026, up from projections for 16% growth a few months ago, according to data compiled by Bloomberg Intelligence. "Everyone is assuming the bottom is going to fall out, in terms of operating metrics. I'm skeptical about that," said Michael Mullaney, director of global market research at Boston Partners. "It could end up that profits and margins are fine, even if there is disruption. If I were a growth manager, I'd be buying the dip." The relentless selling has pushed software stocks deep into territory where technical-minded traders typically expect a rebound. The 14-day relative strength index on the iShares ETF hit 15 on Thursday, the lowest level in almost 15 years, and is around 24 now. Anything below 30 is considered oversold. Meanwhile, valuations keep getting cheaper. A basket of software stocks tracked by Goldman Sachs sank to a record low of 21 times estimated profits, down from a peak of more than 100 in late 2021, according to data compiled by Bloomberg. Salesforce is trading at 14 times profit expected over the next 12 months, compared with an average of 46 over the past decade. "We continue to test the valuation floor and then blow right through it," KeyBanc's Ader said. "People are gun-shy and skittish to say that these stocks are too cheap, because based on historical multiples you could have made that argument at every point for many many months now, and it wouldn't have helped you one bit."

AI Is Tanking Financial Stocks a Week After Software

Want more stock market and economic analysis from Phil Rosen directly in your inbox? Subscribe to Opening Bell Daily's newsletter. When it comes to AI, investors have made a habit of selling first and asking questions later. The same instinct that crushed software stocks last week led to a sell-off in financial services names on Tuesday, following the release of an AI-powered tax-planning tool that implied redundancies for advisory work. Shares of LPL Financial, Charles Schwab and Raymond James all tumbled more than 7 percent after the fintech platform Altruist unveiled a program that can generate personalized tax strategies in minutes.

Blackstone Is Finalizing $3.5 Billion Loan for Australia AI Firm

Private credit giant Blackstone Inc. is finalizing a loan of more than A$5 billion ($3.5 billion) to fund the data center expansion of Australian startup Firmus Technologies Pty., people familiar with the matter said, the latest in digital infrastructure funding tied to the AI boom. The completion of the deal could be announced as soon as next week, the people said, who asked not to be identified discussing private matters. The financing comes amid a broader selloff in technology stocks this week as investor concerns over surging AI-related spending prompted a pullback. Despite looming concerns, investment in data centers to support AI growth is projected to top $3 trillion, much of it debt-funded. Earlier this week, a KKR & Co.-led consortium announced a S$6.6 billion ($5.2 billion) acquisition of data center operator STT GDC Pte., backed by a loan of around S$5 billion. Representatives for Blackstone and Firmus declined to comment. Read more on private credit in Asia Pacific: Goldman, Blackstone to Fund $976 Million Loan for Pharma Buyout AllianzGI, NEC Capital Join EdgePoint's $475 Million Loan Hong Kong Property Bets Grow as Private Credit Fund Doubles Down Firmus signed an agreement last year with CDC Data Centers Pty. to develop data centers of as much as 1.6 gigwatts across Australia by 2028, powered by Nvidia Corp. chips, according to a company press release. On Thursday, it announced the entry of a new investor, following a A$830 million raised in two earlier funding rounds. Boutique advisory firm Highbury Partnership is advising Firmus on the debt financing, people familiar said. The Australian Financial Review first reported on Blackstone's financing role. A new AI automation tool from Anthropic PBC sparked a $285 billion rout in stocks across the software, financial services and asset management sectors on Tuesday as investors raced to dump shares with even the slightest exposure. A Goldman Sachs basket of US software stocks sank 6%, its biggest one-day decline since April's tariff-fueled selloff, while an index of financial services firms tumbled almost 7%. The Nasdaq 100 Index fell as much as 2.4% at one point before trimming losses to 1.6%. The selloff started before the US market opened as traders pointed to a release on the Anthropic website as the reason behind steep declines in the shares of credit and marketing services company Experian Plc, business and legal software maker RELX PLC and the London Stock Exchange Group Plc. Asian software stocks also slid, with shares of Indian information technology companies the latest to buckle. Bellwether Tata Consultancy Services Ltd. sank as much as 6%, while Infosys Ltd. dropped 7.1%. Cloud-based accounting software maker Xero Ltd. fell as much as 16% in Sydney trading, the most since 2013. Asia's broader tech sector showed some resilience as it remains dominated by hardware makers -- particularly chipmakers -- that have been key beneficiaries of the AI investment boom. Explainer: What's Behind the 'SaaSpocalypse' Stock Plunge? Thomson Reuters Corp. and Legalzoom.com Inc. were among the worst performers in the US and Canada, pushing the iShares Expanded Tech-Software Sector ETF down 4.6%, its sixth consecutive day of declines. The ETF is coming off a 15% plunge in January, its worst month since 2008. "This year is the defining year whether companies are AI winners or victims, and the key skill will be in avoiding the losers," said Stephen Yiu, CIO of Blue Whale Growth Fund. "Until the dust settles, it's a dangerous path to be standing in the way of AI." Shares of business development companies were caught in the selling, with Blue Owl Capital Corp. falling as much as 13% for a record ninth-straight decline that dragged the stock to the lowest since 2023. Fears of disruption have rattled credit globally, sending software loans in the broadly syndicated market lower last week. As publicly traded entities, BDCs provide a real-time window into the otherwise opaque direct-lending market. Ares Management Corp., KKR & Co. and TPG Inc. each fell by more than 10% at one point, while Apollo Global Management Inc. and Blackstone Inc. dropped by as much as 8%. Anthropic is part of a rash of AI startups developing tools for the legal industry. Long before Anthropic's plugin, startups including Legora and Harvey AI were flooding the legal industry with tools they say will save lawyers from grunt work. Investors have been pouring money into AI products for the legal industry for more than two years. Harvey AI was valued atBloomberg Terminal $5 billion in June, and Legora raised funds at a $1.8 billion valuation in October. Anthropic stands in contrast, however, in that it builds its own models that can be customized for an industry's specific needs. Its position in the AI ecosystem as a major model developer gives it the unique advantage of disrupting both traditional legal news and data services as well as legal AI upstarts. Firms like Legora rely on the underlying models from developers like Anthropic. On its website of plugins, Anthropic included a legal tool that it says can automate work like contract reviewing and legal briefings. "All outputs should be reviewed by licensed attorneys," according to the website. "Anthropic launched new capabilities for its Cowork to the legal space, heightening competition," Morgan Stanley analysts including Toni Kaplan wrote in a note on Thomson Reuters, the provider of business and legal information. "We view this as a sign of intensifying competition, and thus a potential negative." Another Anthropic release in January -- of its Claude Cowork tool -- boosted jitters for investors who have been monitoring the software sector for AI-related risks to its businesses for months. Other companies have also released products exacerbating the selloff; video-game stocks were caught up in the slide last week after Alphabet Inc. began to roll out Project Genie, which can create immersive worlds with text or image prompts. There are other signs that software companies are lagging their tech sector peers. So far this earnings season, just 71% of software companies in the S&P 500 have beaten revenue expectations, according to data compiled by Bloomberg. That compares with 85% for the overall tech sector. Bloomberg LP, the parent of Bloomberg News, competes with LSEG and Thomson Reuters in providing financial data and news. Bloomberg Law sells legal research tools and software.

Some Experts Argue Software Stock Sell-Off Was 'Too Harsh' Despite AI Fears

Jefferies sees opportunity for software companies that can adapt to AI transformation and leverage their vast pools of data. All the talk of AI "eating" software could have some investors eating their words, according to a recent Jefferies report. A rough year for software stocks morphed into "Saaspocalypse" last week when the release of new agentic tools from Anthropic amplified fears that AI is set to disrupt the software industry. The iShares Expanded Tech-Software Sector ETF (IGV) fell about 8% last week, putting the fund down about 22% since the start of the year. But Jefferies analysts see opportunities for investors who can handle uncertainty. (Software stocks were surging Monday afternoon, helping push major indexes sharply higher.) "The negative sentiment is reaching extreme levels," wrote Jefferies analysts in a note on Sunday. By their measure, sentiment among software investors is nearly as negative as during the 2008 Global Financial Crisis and the Dotcom Crash of the early 2000s. After last week's rout, more than 40% of the software stocks in Jefferies' coverage are trading near historically low valuations. But analysts argue proclamations of software's death are "premature," and that "incumbents that embrace the transition should emerge as [long-term] winners." Software stocks have been dogged by fear that AI threatens the industry on multiple fronts. AI agents and what's becoming known as "vibe coding" could erase software companies' competitive moat. Increased competition from AI-native startups like OpenAI and Anthropic could pressure industry margins. And AI-driven efficiencies at software buyers could shrink headcount, undermining the industry's seat-based pricing model. Momentum in other corners of the technology sector isn't helping sentiment in the software space, according to Jefferies. Tech giants, racing to add computing capacity to train and run AI, are expected to spend about 60% more on infrastructure this year than in 2025. A huge share of that capital is flowing to semiconductor companies and other suppliers of data center hardware. Advanced Micro Devices (AMD), one of the slower growing AI hardware suppliers, is expected to increase revenue by more than 30% this year, compared with growth in the mid-teens for major software providers like Salesforce (CRM) and Intuit (INTU). Many software companies are also struggling to demonstrate that AI is adding to the top or bottom lines. Jefferies estimates that AI accounted for no more than 3% of revenue at any of the application software companies in its coverage last year. Meanwhile, chip makers' sales have skyrocketed amid booming demand from AI data centers. Jefferies believes that over the long term, today's AI concerns will prove overblown and that benefits will accrue to software providers that are "nimble and adapt to the realities of the AI transformation." They say the companies that are best positioned are those with superior access to data, established distribution networks, and entrenchment in enterprise workflows. As for the sector as a whole, a few catalysts could spark a rebound in software stocks, according to Jefferies. The industry would be aided by clarity on the software ambitions of AI model providers like OpenAI and Anthropic. Do they want to replace software or augment it? An answer to that question could clear a big dark cloud hanging over the industry. Evidence that software companies are benefitting from AI would also help to shift the narrative. A meaningful increase in enterprise deployments could boost AI-driven revenue, while implementing AI internally could expand margins. Finally, moderating data center spending could buoy the industry by weakening AI infrastructure's tailwinds, making software's modest growth marginally more attractive to investors.

US stock market | Wall Street's new trade is dumping any stock in AI's crosshairs

Wall Street is experiencing a sell-off in companies perceived to be at risk from AI advancements. Recent product launches, like Altruist's tax-strategy tool, have triggered significant stock declines in wealth management and other sectors. Investors are now prioritizing avoiding disruption over identifying AI winners, reflecting growing anxiety about the technology's potential to reshape industries. On Wall Street, rising fears about artificial intelligence keep pummeling shares of companies at risk of being caught on the wrong side of it all, from small software makers to big wealth-management firms. The latest selloff erupted on Tuesday when a tax-strategy tool rolled out by a little-known startup, Altruist Corp., sent shares of Charles Schwab Corp., Raymond James Financial Inc. and LPL Financial Holdings Inc. down by 7% or more. It was the deepest slide for some of those stocks since the market's trade-war meltdown in April. But it was only the most recent example of a sell-first, ask-questions-later mentality that has rapidly taken hold as new products emerge from the hundreds of billions of dollars poured into AI, sowing anxiety about how the technology may upend entire industries. "Every company with any sort of potential disruption risk is getting sold indiscriminately," said John Belton, a money manager at Gabelli Funds. The advances in AI have been at the forefront of Wall Street over the past few years, with tech stocks leading the charge. As the rally pushed share prices to record highs, questions persisted about whether it was a bubble about to burst -- or would set off a productivity boom that would remake corporate America. But since early last week, a trickle of AI product rollouts triggered a stark sea change. Instead of focusing on picking the winners, investors instead are quickly trying to avoid getting caught owning any company with the slightest risk of being displaced. "I have no idea what's next," said Will Rhind, the CEO of Graniteshares Advisors. "The story from last year was we all believe in AI -- but we're searching for the use case," he said. "And when we keep discovering the use cases that seemingly are more and more powerful and more and more compelling, it's now leading to disruption." The software industry has been dogged by worries about AI for some time. It started shifting more broadly to other sectors last week, when new tools from Anthropic PBC sparked a deep rout in stocks across the software, financial services, asset-management and legal-service sectors. The same fears hammered shares of US insurance brokers on Monday after the online marketplace Insurify unveiled a new application that uses ChatGPT to compare auto-insurance rates. On Tuesday, wealth-management stocks were the next casualty, pulled down by Altruist's product, Hazel, which helps financial advisers personalize strategies for clients. Altruist CEO Jason Wenk said even he was surprised by the scale of the stock market's reaction, which wiped billions of dollars off the market values of a number of investment firms. But he said it sends a strong signal about the competitive threat posed by his company. "It's dawning on people -- this architecture we're using to build Hazel, it can replace any job in wealth management," he said in an interview. "Usually these are jobs done by entire teams. And they'll be done with AI effectively for $100 a month." AI companies like OpenAI and Anthropic have made solid inroads into software engineering with products that help developers streamline the process of writing and debugging code and are moving into other industries. Yet there are plenty of questions about how the technology will be adopted. The banking industry, for one, has seen periodic challenges from crypto, electronic services and other technology that ultimately have done little to chip away at its dominance. Belton, the fund manager with Gabelli, is among those who are skeptical of how Wall Street has gone from worrying about an AI bubble to fears that it's poised to disrupt huge segments of the economy. "There's going to be winners and losers in every industry," Belton said. But, he added, "one rule of thumb is tech-disruption tends to take longer than expected to play out." The pullbacks may also reflect the general anxiety about how much stocks have rallied over the past few years on the back of the AI spending boom and a surprisingly resilient US economy. That has stretched valuations and made investors sensitive to fears of a reversal. "If they just give a whiff of something that the market perceives as being somewhat negative, the stock's going to sell off 10% in a way that would never happen in a market that was not trading at this level," said Graniteshares' Rhind said. To Ross Gerber, the CEO of Gerber Kawasaki, the angst about AI losers that has been battering parts of the market for the past week is premature. He said it's still far too early to say what exactly the fallout will be. "We can try to extrapolate out what the world will look like in five years with AI, but we just don't know," he said. "Markets are trying to make these calls on it when we're still in the beginning of this infancy."

The 'AI-Phobia' Hammered These 4 Sectors: Time To Buy The Dip? - Apollo Global Management (NYSE:APO), FedEx (NYSE:FDX)

The market's AI trade just flipped from euphoria to fear, and four major industries are suddenly in the bargain bin. In a note shared Thursday, veteran investor Ed Yardeni said investors have moved from "AI-phoria to AI-phobia," hammering Software, Brokers, Insurers and Asset Managers in just weeks. Instead of bidding up anything with an AI angle, markets are now punishing companies seen as vulnerable to it. 1. Software: Disruption Or Discount? Software stocks have taken the hardest hit. The iShares Tech-Expanded Software Sector ETF (NYSE:IGV) is down nearly 20% year-to-date, making it the worst-performing industry group. The catalyst? Fears that AI-native tools -- like Anthropic's Claude -- could disintermediate traditional enterprise software providers in areas like legal services, finance and sales. Data providers were not spared. Investors quickly extrapolated: if generative AI can perform specialized workflows, do companies still need high-priced application software? "For those who lived through the advent of the Internet, this feels like déjà vu all over again," Yardeni said. Forward price-to-earnings ratios have compressed sharply. Application Software now trades at 23.7 times forward earnings, down from 35.3 at its recent high. Systems Software trades at 23.3, down from 35.5. Cheap for a reason -- or simply cheap? 2. Brokers: If AI Can Advise, What Happens To The Advisor? Investment banks and brokerage firms also saw pressure after fintech firm Altruist rolled out AI tools capable of recommending personalized tax strategies. The fear: if AI can optimize taxes today, could it handle broader financial advice tomorrow? The industry's forward P/E has dropped from 24.7x to 15.9x. Yet, this is less about current earnings and more about long-term margin pressure. If AI reduces friction in financial advice, traditional advisory models could face structural competition. 3. Insurance Brokers: Automation Anxiety Insurance brokers were also hit after reports that AI-driven tools are being integrated directly into conversational platforms to generate personalized insurance quotes. "OpenAI approved an insurance application for ChatGPT developed by the Spanish digital insurer Tuio," Yardeni highlighted as key news disrupting the sector. If underwriting, comparison and quoting become seamless within AI interfaces, where does the broker fit? The S&P Insurance Brokers industry index - as closely tracked by the State Street SPDR S&P Insurance ETF (NYSE:KIE) - has fallen 4% year-to-date. Shares of major players have dropped sharply from their peaks. Yet insurance remains relationship-driven and compliance-heavy -- areas where incumbents maintain advantages. Again, the core issue is earnings durability. Will AI meaningfully erode commissions? Or will brokers incorporate AI into their own distribution channels? 4. Asset Managers: Collateral Damage Alternative asset managers may be the most indirect casualties of the AI selloff, according to Yardeni. Investors worry they have significant exposure to private software companies -- both through equity stakes and private credit. As public software valuations decline, exit opportunities shrink and concerns rise about marks on private portfolios. Several large alternative managers are down double digits year-to-date -- and significantly more from their late-2024 highs. "Before worries about their exposure to software weighed on the stocks, they'd been facing investors' fears that credit losses in a wide variety of industries lurk in their private loan portfolios," Yardeni said. Meanwhile, Blue Owl Capital Inc. (NYSE:OWL) has already fallen more than 50% from its record highs. Are These Industries Cheap Enough Now? "These industries' forward P/Es have plummeted to ridiculously low levels relative to current earnings projections," Yardeni said. According to Wall Street consensus estimates for 2026, earnings growth projections remain intact: Financial Exchanges & Data: 7.6% growth, 22.5x forward P/E Insurance Brokers: 12.2% growth, 15.9x Investment Banking & Brokerage: 14.4% growth, 16.9x Asset Management & Custody Banks: 15.4% growth, 15.5x Application Software: 17.3% growth, 23.7x Systems Software: 19.8% growth, 23.3x Those multiples are dramatically lower than recent peaks. In several cases, they've fallen from the mid-30s to the low-20s -- or from the mid-20s to the mid-teens. On paper, that looks like a reset. But the market isn't debating valuation in isolation -- it's debating durability. "Will AI competition trigger downward earnings revisions as contracts are renewed? That's the risk," Yardeni said. Photo: Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

Private Capital Titans Rush to Defend Software Companies as AI Rout Deepens

Despite their efforts to calm investor nerves, shares of large alternative asset managers took another dive, with some executives acknowledging that the perception of risk can make sponsors less likely to support their businesses and make refinancing loans more difficult. High finance's new ultra-rich lined up one by one, in TV spots, earnings calls and LinkedIn posts, to make the same pitch: Don't take out big AI fears on private credit funds. Blue Owl Capital Inc. billionaire Marc Lipschultz insisted that there were no "red flags" -- or even "yellow flags" -- in the firm's technology loans, speaking on an earnings call Thursday after an unprecedented losing streak for its shares. Scott Nuttall at KKR & Co. similarly told analysts that "our level of anxiety is pretty low." Mike Arougheti, the billionaire chief executive of Ares Management Corp., vowed on Bloomberg TV that "there is a huge disconnect, and the narrative is wrong" around artificial intelligence and the potential disruption it may cause. And Holden Spaht, managing partner at Thoma Bravo, said in a LinkedIn post that after a week of board meetings with software-as-a-service companies, he's confident that "the growth numbers look to be accelerating, not decelerating." Their defense boils down to this: There are good software companies and bad ones -- and we back the good ones. Whether the concerted effort to calm investor nerves will ultimately work is anyone's guess. Shares of large alternative asset managers took another dive on Thursday, capping a bruising stretch that added to their worst January in a decade. The $1.7 trillion private credit industry has ballooned in recent years, minting fortunes for its leaders. A sizable chunk of those loans -- some $100 billion as of the third quarter, according to PitchBook data -- went to software companies, oftentimes at lofty valuations. Those are the very businesses that are now in the crosshairs of investors amid concerns that AI will decimate their offerings. The fallout in the loan market has been swift. More than $17.7 billion of US tech company loans in a Bloomberg index have dropped to distressed trading levels during the past four weeks, adding to the biggest pile in more than three years. Another pillar of private credit's defense: This kind of broad selling is when we can buy on the cheap. "I certainly might expect that the broadly syndicated market will have a hard timeBloomberg Terminal providing financing for some software businesses," Kort Schnabel, CEO of Ares Capital Corp., said on an earnings call Thursday. "We might be excited to provide that type of financing to the very best of those companies." Equity Cushion Private lenders have emphasized their position in a company's capital structure, saying that their equity cushions, nearing around 70% in some cases, would have to be fully impaired for them to see significant losses. They also reiterated that all they need is to get paid back. But even the perception of risk can make sponsors less likely to support their businesses, making refinancing loans more difficult. The acceleration of AI also means that outcomes of software businesses will diverge, making recoveries worse for some than previously modeled. Time, too, is not on lenders' sides. A report by Barclays found that almost half of software exposure from business development companies is set to mature in four years or later, accounting for around $45 billion of loans. Among lenders, a Sixth Street business development company and a Blue Owl BDC have the highest exposure to longer-maturity software loans, it said. "Having a software portfolio with longer duration, however, potentially exposes the lender to a much more difficult refinancing if AI disruption risk grows with time and impairs software valuations even more," Barclays analysts wrote. Shares in BDCs and alternative asset managers traded down this week over fears around AI disruptions. "This is not just a market tantrum," said David Golub, CEO of Golub Capital BDC. "Nobody really has all the answers here. This is a new technology, and it's been moving at a pace that even experts in the field have not expected." 'Misunderstanding' Shares in Ares tumbled Thursday in the broader selloff, even as the firm reported that it ended the fourth quarter with record assets. Arougheti said during an interview on Bloomberg TV that people are misunderstanding how senior and safe many firms are, given that the financings under discussion are largely senior-secured loans. "What the market is missing is how attractive these loans have been," he said. Like its rivals, software was a major topic on an earnings call for one of its BDCs, Ares Capital Corp. -- with the word mentioned some 57 times. The BDC has around 24% of its assets exposed, the firm told investors. Executives said they feel "very good" about their software book, adding that they have an in-house AI team to evaluate investments. Executives at Oaktree Specialty Lending Corp., which has around 23% of the fund in software assets, told investors that they've been passing on more deals due to software risk and triaging their credits exposed to AI, including developing AI scorecards. "It's too early to actually see performance degradation in any software names, and it's probably going to take a fair bit of time to actually see any sort of dispersion in performance due to AI or a disruption in performance due to AI," said Oaktree Specialty Lending CEO Armen Panossian.

The Stock Market's Paradoxical Doomsday: Artificial Intelligence Is Running Out of Gas yet Bound to Replace Software

There are some very complex dynamics currently at play in the stock market. Heading into the year, investors had concerns about artificial intelligence (AI) stocks. Valuations were high, and the hyperscalers are each planning to pour hundreds of billions into AI-related capital expenditures this year. Investors began to question whether this kind of capex would truly yield worthwhile returns. The group sold off. In recent weeks, software stocks have also crashed, largely due to concerns that AI can easily replicate or disrupt software-as-a-service (SaaS) products, business models, and margins. The combination of these two dynamics has resulted in a paradoxical doomsday of sorts: AI may be running out of gas, yet it is also going to disrupt software as we know it. Can AI really be struggling and disrupting software at the same time? The issue for AI is that large tech companies like those in the "Magnificent Seven" have spent heavily on AI-related capex, yet the market is unsure whether the returns will pan out. For one, there is the issue of resources. AI runs on massive datasets and is powered by data centers. These data centers consume resources like power and fresh water to cool the chips in the data centers. A report published by the Lawrence Berkeley National Laboratory in December 2024 found that by 2028, over half of the power being used by data centers will be for AI, which could consume enough electricity equivalent to 22% of all U.S. households. Another report published by the consulting firm McKinsey last year estimated that there would need to be $6.7 trillion in spending on data centers by 2030 to keep pace with the demand for computing power. Meanwhile, the latest models from OpenAI's ChatGPT have faced criticism, leading investors to wonder whether all this spending will yield significantly better models. This, coupled with high valuations, has triggered a sell-off in recent months. But at the same time, software stocks have been crushed on the threat of AI. More recently, Anthropic developed a new agentic AI tool called Claude Cowork, which can connect to files that a user grants access to and be prompted to complete a range of non-coding tasks on one's computer. This has led the market to believe that AI tools like this could eventually render many software models and tools obsolete. Data by YCharts. Still, the idea that AI investments will not pan out, yet AI will significantly disrupt software, "cannot occur at once," according to Bank of America's Vivek Arya. "AI models provide unprecedented levels of intelligence, yet harnessing and productizing that intelligence will take time, likely the next several years," Arya said in a research note, according to Barrons. Is this a doomsday for software or a reset? While investors have clearly been selling first and asking questions later, there are likely to be winners and losers. AI will certainly disrupt many software companies. However, there will also be plenty of software companies well-positioned to leverage AI and enhance their business models. There are already plenty of software companies that have partnered with major AI companies. So I do think that some of this selling might be overdone. That said, this is more than likely a rerating of the sector as a whole. AI is going to enable companies and people to build software solutions much more quickly, which is likely to remove the big moats that some of these software players previously had and likely erode margins. The days of monster valuations, when unprofitable SaaS companies trade at 15 or 30 times revenue, could be coming to an end. I suspect that, over time, the bridge between AI and software will converge until the two are indiscernible, but as seen in recent weeks, not all transitions are smooth or pleasant.

Deutsche Bank Warns Software Debt Faces AI Threat | PYMNTS.com

By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions. The analysts highlighted concentration risks to the speculative-grade credit market, saying that the software and tech sectors account for 14% and 16%, respectively, of that credit universe, according to the report. Those percentages amount to $597 billion and $681 billion, respectively, per the report. The Deutsche Bank analysts said that total is "a meaningful chunk of debt outstanding that risks souring broader sentiment, if software defaults increase," according to the report. There is also a threat of software-as-a-service firms' multiples and revenues being weighed down by the adoption of artificial intelligence tools, the report said. "The reality today has now changed from when many of these firms were initially financed," the Deutsche Bank analysts said, per the report. "The SaaS value creation model is not yet mature enough to withstand a rapid rollout of AI tools." It was reported Jan. 31 that software companies are seeing their loan prices fall amid investors' concerns that AI advances, such as the coding capabilities of Anthropic's Claude model, will make many software offerings redundant. "A storm has hit the loan market," Scott Macklin, head of U.S. leveraged finance at asset manager Obra Capital, told Bloomberg at the time. "The heaviest calendar in months, largely repricing-driven but still overwhelming, has collided with mounting existential questions around software business models as AI reshapes the sector, which is the single largest in loans." PYMNTS reported Friday (Feb. 6) that as of Wednesday (Feb. 4), more than $800 billion in market value was wiped out of the enterprise technology sector after Wall Street analysts pointed to the disruptive potential of new enterprise AI tools from providers such as Anthropic that are designed to automate processes like contract reviews and legal briefings. The PYMNTS Intelligence report "Smart Spending: How AI is Transforming Financial Decision Making" found that more than eight in 10 chief financial officers at large companies are either already using AI or considering adopting the technology.

US Software Stocks Slide as AI Tools Raise Concerns Over Business Models

AI Disruption Fears Hit Software Valuations, Pushing the Sector into Its Deepest Sell-Off Since 2022 US software stocks declined sharply in early February, and the slide unsettled investors who were betting on the AI-related stocks. The impact spread across global markets and pushed software and services shares into their steepest drawdown since the 2022 rate-driven selloff. The move followed growing concern that fast-improving AI tools could weaken parts of the traditional software business model. Investors also watched for signs that the market had started a broader rotation away from high-growth technology shares.

Ripple effects of software rout felt through asset managers

Feb 6 (Reuters) - Asset managers and private equity firms found themselves at the sharp end of the AI-driven shock hitting the software sector as investors fretted over exposure to loans and leverage tied to the industry. The pullback in software - which has wiped out nearly $1 trillion in market capitalization in those stocks - impacted asset managers, with the group as a whole hurt. The Dow Jones US Asset Managers Index is down nearly 5% for the week as of Friday afternoon versus the S&P 500 which is around flat. Individual names that sold off included Ares, Blackstone, Blue Owl, Carlyle, Apollo, TPG and KKR, which fell between 7% and 14% this week - recovering some ground in a rebound on Friday. "There are a few issues compounding the drawdown," said Mark Hackett, Nationwide chief market strategist in Philadelphia. "The trigger for the (private equity/business development corporation/asset management) stocks is driven by the software selloff and concern over loan exposure and leverage." Morgan Stanley pegged technology services deal volumes at nearly 21% of overall private-equity activity, noting that TPG Inc, Carlyle and KKR were slightly above that level, while Apollo was the lowest among the asset managers in its coverage. The AI trade had "subsumed parts of the market," said Wasif Latif, chief investment officer at Sarmaya Partners in New Jersey. "This is especially true for asset managers and PE (private equity) firms." With software stocks down 22% since January, loan-to-enterprise value (LTV) has increased for associated credits, raising concerns around default risk, BNP Paribas analysts Meghan Robson and Ben Cannon said in a note. LTV measures total debt against a company's total valuation. Software and services exposure is significantly larger in U.S. leveraged loans, around 17%, and 4% in the U.S. high yield loan market, the note said. In the private credit space, software exposure is about 20%, BNP estimated based on quarterly filings of specialized investment firms known as BDCs. LENDING EXPOSURE The non-bank lending sector, which includes private credit funds and esoteric vehicles such as collateralised loan obligations, has also become exposed to the software groups' declining growth and credit quality. Software borrowers are the biggest exposure for private lenders and the most highly indebted, while their revenue growth is also slowing, data from alternative credit analysis group KBRA published February 5 showed. With sales growth down to 10% from 18% a year ago because of factors including companies' delaying or cutting IT spending, private credit's software borrowers are also shouldering debt worth 7.4 times much as their profits measured before tax, interest and other deductions, on average, KBRA data showed. This compared to 5.9 times average leverage across a more than $1 trillion pool of loans studied by KBRA. One banker who works with asset management, who declined to be named, said alternative asset managers will face a test when they look to exit some investments, particularly in software. Managers of business development companies (BDCs), a key vehicle in private credit through which a fund raises money from investors to then lend directly to mid-sized companies, have been quizzed about software holdings. Ares executive Kort Schnabel said on a conference call on Wednesday that its business development company, Ares Capital Corporation, had "a very small amount of portfolio companies that could be disrupted." KKR Co-CEO Scott Nuttall told analysts on a conference call on Thursday that the firm had taken "an inventory of our portfolio the last two years" and identified whether AI was "an opportunity, or a threat, or a question mark." Blue Owl said its software portfolio represents 8% of total assets under management as it played down concerns following this week's selloff, while Carlyle said software accounted for 6% of its AUM. Speaking at a conference last week before the sell-off took hold, Blackstone President and Chief Operating Officer Jon Gray said AI disruption risk was "top of the page" for his firm, which manages assets worth $1.27 trillion. He said the safest way to play the AI megatrend was investing in data centers and surrounding infrastructure. Apollo declined to comment ahead of its quarterly results on Monday, while Blackstone and Blue Owl did not respond to Reuters' requests for comment. (Reporting by Medha Singh in Bengaluru, Chibuike Oguh, Isla Binnie, Saeed Azhar in New York, Amy-Jo Crowley and Naomi Rovnick in London; additional reporting by Avinash P, Editing by Megan Davies, Anousha Sakoui and Nick Zieminski)